This maneuver, fully legal, meant that Apple could use the money it held overseas to provide cash at no cost in the United States—without a penny to the tax man.
For all Senator McCain’s ire, Apple’s subsidiary-of-a-subsidiary-of-a-subsidiary structure—the scheme that placed $74 billion beyond the reach of the tax authorities—was actually not as convoluted as another tax-dodging contraption, the intricate mechanism known as a “Double Irish with a Dutch Sandwich.” This one works nicely to shield profits from the tax man for companies that have a good deal of intellectual property, like search engines, software, cancer drugs, or computer operating systems. The “Double Irish” has been used by the likes of Apple and Microsoft, but it’s generally agreed, among aficionados of tax avoidance, that the paradigm case of this particular apparatus is Google’s international tax shifting, which is complicated to the point of being difficult to pin down precisely

Although Obama has proposed rules that could make it tougher for companies to relocate abroad specifically for tax reasons, politicians haven’t made a dent in the usual offshore financial wizardry practiced by many of the country’s largest firms. These tactics are particularly common in sectors like finance, technology, and pharmaceuticals—that is, intellectual-property-driven industries in which the virtual nature of assets (ideas, formulas, patents, algorithms, and the like) makes it especially easy to shift profits to the cheapest possible tax jurisdiction, regardless of where they really came from.
Ever hear of a double Irish? How about a Dutch sandwich? These aren’t cocktails or bar snacks but rather complex financial strategies used by many American companies to transfer profits they earn abroad to countries with the lowest tax rates. Despite the goofy nicknames, these techniques have a serious and nefarious purpose: to keep money away from the United States whenever possible so as to avoid paying the higher corporate tax rates in effect at home.

…

According to a source who attended that meeting and spoke to me off the record, one of the radical ideas attendees bounced around envisioned companies writing checks to social media users, based on how much their data streams are monetized by these firms.8
But in terms of how to reward makers over takers, tax reform remains the largest and most immediate fight. The US code is ripe for an overhaul, in both the corporate and the consumer sphere. Tax inversions, Dutch sandwiches, and Cayman Islands wizardry that expatriate the gains of American corporations to enrich a tiny managerial caste suggest a whole new genre of selfish capitalism. As this book has attempted to illustrate, globalization and financialization, working hand in hand, allow firms to fly thirty-five thousand feet over the problems of both individual nations and people, who are all too familiar with the reality on the ground: an economy in which wages still aren’t rising fast enough, good middle-class jobs remain hard to come by, and public deficits remain large, since the private sector won’t spend on real-economy investments to fill the void.

…

The Irish system can be further exploited if a US firm sets up a second overseas subsidiary in Ireland to manage non-US sales on patents.
American firms do a lot of this, redirecting to the most tax-advantageous country the intellectual property that may have been the work of many people in many countries. Basically, this strategy funnels the profits from the knowledge economy, where the innovation actually occurred, to a different economy that offers the cheapest cash haven. Firms can go further and add a “Dutch sandwich” onto this maneuver. Because there are European Union tax agreements in place that allow money to move freely between EU countries, American firms can set up Dutch subsidiaries and transfer more money from more countries into Irish subsidiaries. The whole thing creates a global race to the bottom, which underscores one of the key problems of tax avoidance: the so-called “tragedy of the commons” where, in the end, everyone loses.

pages: 443words: 98,113

The Corruption of Capitalism: Why Rentiers Thrive and Work Does Not Pay
by
Guy Standing

Luxembourg’s arrangements with Amazon and McDonald’s are also under investigation, following revelations that it had made secret deals with hundreds of companies.
Whatever their legality, these schemes are a means by which firms obtain substantial rental income. Even more egregiously, some multinationals have exploited anomalies in the tax rules of different jurisdictions, using devices such as Google’s famous ‘Double Irish with a Dutch sandwich’ to move profits to tax havens such as Bermuda where the corporate tax rate is zero. In 2011, nineteen subsidiaries registered in Ireland used the ‘Double Irish’ to avoid tax on €33 billion of profits, equivalent to a fifth of the country’s economic output that year.
Perhaps the biggest source of corporate tax avoidance is the parking of profits offshore by US companies, induced by the US tax system. While most countries operate a territorial tax system, taxing only profits deemed to arise in their jurisdictions, the US taxes companies and individuals on their worldwide income.

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After complaints from other EU countries, notably Germany, the rules were tightened to tie the concession more closely to patents linked to research and development in Britain. But companies can still claim a reduced rate on patents they have bought in or that arise from outsourced research.
France, Luxembourg, Spain, Portugal, Italy and the Netherlands (which has a concessionary rate of just 5 per cent) are among countries that operate a patent box. Ireland, which under pressure closed a related tax-dodging loophole known as the ‘Double Irish’, is introducing a patent box with a concessionary rate of 6.25 per cent.
The ostensible purposes of patent boxes are to encourage firms to do more research and to attract ‘knowledge-intensive’ multinationals. But they are in reality another beggar-my-neighbour subsidy that leaves no one better off except the corporations. The money to make up the loss must come from higher taxes on labour and consumption or from cuts in public spending.

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Like all companies and other organisations, these businesses depend on a workforce and a customer-base that is educated, a health system that keeps their workers healthy and a public infrastructure, including a legal system. While the little people pay their taxes for all these things and more, many incredibly wealthy companies free-ride on them.
The double Irish and the Dutch sandwich
Google’s sixth ‘core value’ is: ‘Do the right thing: don’t be evil. Honesty and Integrity in all we do. Our business practices are beyond reproach. We make money by doing good things.’64
Google cut its taxes by US$3.1 billion, using a technique that moves most of its foreign profits through Ireland and the Netherlands to Bermuda. These strategies, known to lawyers as the double Irish and the Dutch sandwich, helped Google to reduce its overseas tax rate to 2.4%.65
Margaret Hodge, who chairs the UK parliament’s Public Accounts Committee, took Google’s UK Vice-President, Matt Brittin, to task over this: ‘You are a company that says you “do no evil”.

In the state anti-trust suits against Microsoft, almost all states settled before trial.
Laws can have loopholes. This can happen by accident, when laws are linguistically ambiguous, contain simple errors, or fail to anticipate some new technological development. It can also happen deliberately, when laws are miswritten to enable the skillful few to evade them.
Examples of accidental loopholes are the “Double Irish” and “Dutch Sandwich” loopholes that allow multinational corporations to avoid U.S.—and other—taxes.14 It's how Google pays only 2.8% of profits in tax. One estimate claims the U.S. loses $60 billion per year in taxes this way. Another loophole allows large paper mills to claim $6 billion in tax credits per year for mixing diesel fuel in with a wood byproduct they already burn; the law with the loophole was intended to reduce the consumption of fossil fuels.15 A variety of loopholes make video games one of the most highly subsidized industries in the U.S.

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And, as we've seen in Chapter 12, the person who is in charge of making this decision will do better personally if he ignores his own moral considerations and cooperates with his employer. Even worse, if the corporation doesn't maximize profits, it risks a shareholder lawsuit.
Additionally, market competition encourages sellers to ignore moral pressure as much as they can. Imagine if you were in a corporate boardroom, discussing the Double Irish tax loophole and how it could save your company millions. After it has been explained how the maneuver is perfectly legal, and how other companies are doing it, how far do you think a “but it's immoral” argument is going to go? Even if you don't want to do it, if you don't and your competitors do, you'll be uncompetitive in the marketplace—reminiscent of the sports doping example from Chapter 10.

They can allocate their profits on lucrative patents on iPads and iPhones to their overseas operations or they can sell software applications from low-tax countries overseas, shifting around tens of billions in income from country to country with legal but cleverly devised bookkeeping to avoid taxes in the United States and in other countries, too. Earlier this year, The New York Times reported that Apple had pioneered an accounting technique known as the “Double Irish with a Dutch Sandwich,” which cut Apple’s taxes drastically by routing profits through Irish subsidiaries to the Netherlands and then to the Caribbean. Today, hundreds of other U.S. corporations have copied tactics invented by Apple, which, in 2011, paid only $3.3 billion in taxes on $34.2 billion in profits.
Under current tax law, U.S. multinationals are allowed to write off all their overseas costs immediately, even though they don’t pay tax on those overseas profits until the money is repatriated.

In 2010 and 2011, technology firms in the Standard & Poor’s 500 stock index reported an average global tax rate one-third less than the rest of the S&P according to a New York Times study.37 Apple had a tax rate of only 9.8 percent in 2011, saving some $2.4 billion in taxes, according to estimates by Martin Sullivan; it sloshed profits around the globe using tactics with names like the Double Irish with a Dutch Sandwich.38
A favorite haven is Luxembourg, where servicing tax dodgers accounts for up to one-half its national income.39 The profit on your Apple music or app downloads, for example, is recorded at a mail drop called iTunes S.àr.l. in Luxembourg. Oh, and that Apple product you bought in Berlin? You likely purchased it through a reluctant German commissionaire, a cutout for a firm in low-tax Singapore, where the profits of the German transaction are actually recorded.40 The example of Google is also instructive.